When disasters strike, like the recent hurricanes, taxes are not the first thing that come to mind. Rescuing life, providing relief and restoring individuals and businesses back to normal are what matters. However, for better or worse, taxes do play a part. The disruption and destruction caused to both individuals and businesses by natural disasters make tax relief necessary and helpful to the restoration process.

Federal tax relief

A federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance. At the federal level, there are some key provisions that you need to be aware of, such as what qualifies as a disaster area loss, a casualty loss and qualified disaster relief payments.

Casualty losses
A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected or unusual event such as a flood, hurricane, tornado, fire, earthquake or volcanic eruption. If your property is personal-use property or isn’t completely destroyed, the amount of your casualty loss is the lesser of:
• The adjusted basis of your property, or
• The decrease in fair market value of your property as a result of the casualty

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis. You must reduce the loss, whether it’s a casualty or theft loss, by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation.

Individuals and businesses that suffer losses in a federally declared disaster area may elect to deduct the loss either in the tax year in which it occurred or in the immediately preceding tax year.

If your loss deduction is more than your income, you may have a net operating loss (NOL). You don’t have to be in business to have a NOL from a casualty.

Generally, you may deduct casualty and theft losses relating to your home, household items and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.

Qualified disaster relief paymentsQualified disaster relief payments include payments from any source to or for an individual paid as a result of a qualified disaster:
• to pay or reimburse reasonable and necessary personal, family, living or funeral expenses, including personal property expenses;
• to pay or reimburse necessary expenses incurred for the repair of a personal residence, including one that is rented, or its contents;
• including payments made by a common carrier on account of death or personal physical injury; and
• including amounts paid by a federal, state or local government to promote the general welfare.

Audit relief
Taxpayers may also obtain audit relief. It has been reported that IRS agents have been informally telling tax professionals that audit and collection activities in disaster areas will be delayed until January 2018. This is not a formal policy. However, if a taxpayer would like to keep their case going to obtain closure sooner, they can contact the IRS.

Tax return deadline relief
Hurricane Harvey victims in parts of Texas have until Jan. 31, 2018 to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayer with valid extensions that run out on Oct. 16, and business with extension that run out on Sept. 15. The IRS has also announced that it will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highway in Florida due to shortages of undyed diesel fuel caused by Hurricane Irma.

Recent legislation
On Sept. 29, President Donald Trump signed The Disaster Tax Relief and Airport and Airway Extension Act of 2017 (H.R. 3823) into law. The legislation provides tax relief for hurricane victims and includes relief measures such as lowering the threshold for deduction of personal casualty losses and allowing hurricane victims to withdraw funds from their retirement accounts without a penalty.

Relief for citrus growers is expected to be included in a separate bill under consideration this month.

State tax relief

When disasters strike, generally the states directly involved are the first to provide relief similar to that at the federal level, such as the postponement of return due dates and other applicable relief depending on the situation. Other states, not directly affected, generally follow by allowing taxpayers located in federally declared disaster areas or impacted by the disaster to request filing extensions and obtain relief.

States who are currently granting such relief include Texas, Florida, Tennessee and Georgia.

Texas
For example, in Texas, the Comptroller is granting businesses located in the federally declared disaster areas in Texas that are not required to report (file) electronically, an automatic 30-day extension to complete the August monthly sales and use tax reports due Sept. 20, and quarterly sales and use tax reports due Oct. 20.

Florida
In Florida, for Florida corporate income tax filers, the Department will follow the tax relief granted by Internal Revenue Service regarding postponement of return due dates. Florida corporate income/franchise tax returns originally due, or due on extension, between Aug. 24, 2017, and Jan. 1, 2018, are now due by Feb. 15, 2018.

Other states
Almost all other states are providing some type of relief related to the hurricanes that hit Texas and Florida.

For example, Tennessee allows out-of-state taxpayers affected by natural disasters to request a filing extension for their Tennessee tax returns. The Department of Revenue will work with taxpayers to consider, on a case-by-case basis, the requests for relief from taxpayers who are unable to file tax returns because of the impact of hurricanes or other natural disasters. Taxpayers that are granted an extension for disaster relief will not be assessed penalty for payments made on or before the extended due date. However, interest charges will apply.

Georgia is postponing until Jan. 31, 2018, certain deadlines for individuals who reside, and businesses whose principal place of business is located, in the disaster area. Keep in mind, the person or business must have been affected by the disaster.